Business decision analysis

Government should abolish monopolies and mergers since they are at no benefits to society and instead encourage perfect compition which can lead to a low cost of production discuss.

INTRODUCTION:

  1. Dominance and monopoly
  2. Mergers and acquisitions
  3. Price discrimination
  4. Government creates barriers
  5. Marketing research for strategic decision making
  6. Conclusion
  7. References

Government should abolish monopolise and merger because of the reason is if government abolish this thing people get more benefit if they encourage the competition in same field or market and also from this they can also get more revenue.

Dominance and monopoly

Main articles:Dominance (economics)andMonopoly

The economist's depiction of deadweight to efficiency that monopolies cause

When firms hold large market shares, consumers risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power that a monopoly may confer, for instance through exclusionary practices.

First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer."Under EU law, very large market shares raise a presumption that a firm is dominant,which may be rebuttable.If a firm has a dominant position, then there is "a special responsibility not to allow its conduct to impair competition on the common market".

Similarly as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed,certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive.Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case inMicrosoft v. Commissionleading to an eventual fine of 497 million for including itsWindows Media Player with theMicrosoft Windowsplatform. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse.

Mergers and acquisitions

A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before.This usually means that one firm buys out thesharesof another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises,ex anteprevention of creating dominant firms.In the United States merger regulation began under the Clayton Act, and in the European Union, under the Merger Regulation 139/2004 (known as the "ECMR"). Competition law requires that firms proposing to merge gain authorisation from the relevant government authority, or simply go ahead but face the prospect ofdemergershould the concentration later be found to lessen competition. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts.Concentrations can increaseeconomies of scaleand scope. However often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can have a knock on effect on the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentrationwouldif it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening off a dominant position..."and the corresponding provision under US antitrust states similarly,

"No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital... of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where... the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.

  • Banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position.
  • Practices controlled in this way may includepredatory pricing,tying,price gouging,refusal to deal, and many others.
  • Supervising themergers and acquisitionsof large corporations, including somejoint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing

Price discrimination

Exists when sales of identical goods or services are transacted at differentprices from the same provider. In a theoretical market withperfect information, notransaction costsor prohibition on secondary exchange (or re-selling) to preventarbitrage, price discrimination can only be a feature ofmonopolisticandoligopolistic markets, wheremarket powercan be exercised. Otherwise, the moment the seller tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling to the consumer buying at the higher price but with a tiny discount.

However, product heterogeneity, market frictions or high fixed costs (which make marginal-cost pricing unsustainable in the long run) can allow for some degree of differential pricing to different consumers, even in fully competitive retail or industrial markets. Price discrimination also occurs when the same price is charged to customers which have different supply costs.

The effects of price discrimination onsocial efficiencyare unclear; typically such behaviour leads to lower prices for some consumers and higher prices for others. Output can be expanded when price discrimination is very efficient, but output can also decline when discrimination is more effective at extracting surplus from high-valued users than expanding sales to low valued users. Even if output remains constant, price discrimination can reduce efficiency by misallocating output among consumers.

Government creates barriers

Although the principal role of the government in a market is to preserve competition through antitrust actions, government also restricts competition through the granting of monopolies and regulation. Industries such as utilities are considered natural monopolies because it has been more efficient to have one electric company provide power to a locality than to permit many electric companies to compete in a local market. To restrain utilities from exploiting this advantage, government permits a monopoly, but regulates the industry. Illustrative of this kind of barrier to entry is the local cable company. The franchise to a cable provider may be granted by competitive bidding, but once the franchise is awarded by a community a monopoly is created.

Local governments were not effective in monitoring price gouging by cable operators, so the federal government has enacted legislation to review and restrict prices.

Marketing Research for Strategic Decision Making

The two most common uses of marketing research are for diagnostic analysis to understand the market and the firm's current performance, and opportunity analysis to define any unexploited opportunities for growth. Marketing research studies include consumer studies, distribution studies, semantic scaling, multidimensional scaling, intelligence studies, projections, and conjoint analysis. A few of these are outlined below.

  • Semantic scaling: a very simple rating of how consumers perceive the physical attributes of a product, and what the ideal values of those attributes would be. Semantic scaling is not very accurate since the consumers are polled according to an ordinal ranking so mathematical averaging is not possible. For example, 8 is not necessarily twice as much as 4 in an ordinal ranking system. Furthermore, each person uses the scale differently.
  • Multidimensional scaling (MDS) addresses the problems associated with semantic scaling by polling the consumer for pair-wise comparisons between products or between one product and the ideal. The assumption is that while people cannot report reliably which attributes drive their choices, they can report perceptions of similarities between brands. However, MDS analyses do not indicate the relative importance between attributes.

Conclusion:

When monopolies are permitted to exist, there are several types of policies that should be implemented in order to assure maximum benefit to the economy.

They include (1) outlawing price discrimination,

Outlawing the use of monopoly power with regard to one product for the purpose of gaining a monopoly with regard to other products,

Setting standards for quality and

Restricting the direct or indirect political activities of the monopolist.

Because of the strong consensus among economists that large monopolies, and particularly those that abuse their monopoly powers, can be harmful to an economy, most industrial countries have enacted laws aimed at preventing anti-competitive practices and have regulators to aid in the enforcement of such laws.

References:

  • Electronics media, Quick mba.com, Wikipedia.org, Economics help.com, Financialtimes.com.The Linux information project.

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